Investors focus on dipping US bond yields rather than Middle East war … for now

By Tim Treadgold| Investors shrugged off the first week of the latest war in the Middle East but it might be wise to look ahead for future effects on three key wartime commodities, gold, oil and copper, which could all surge higher as the fighting continues.


Hints of a wider conflict than the current Hamas v Israel clash can already be seen as other countries (and terrorist groups) in the region consider whether to join in, an increasingly likely development as a ground war unfolds in Gaza.

If that happens, as has occurred in the past, gold, oil and copper could rise sharply with gold moving back towards US$2000 an ounce, oil heading up to US$100 a barrel and copper re-testing the US$4 per pound mark.

The challenge for investors is the dealing with the uncertainty of what happens next after a surprise attack on Israel which has been likened to the Japanese bombing of Pearl Harbour in 1941 and the felling of the twin towers in New York in 2001. Both signalled years of war.

Gold has so far reacted modestly with a US$45/oz rise to US$1876/oz. Oil rose sharply initially but a US$5/bbl rise to US$89/bbl quickly faded. Copper also rose quickly before slipping back to US$3.60/lb, roughly where it was before Hamas invaded.

Locally, the Australian stock market rose steadily this week with domestic issues, including Saturday’s referendum, drowning out the noise from Israel with the only obvious war-affected stocks being oil and gas producers. Woodside added $1.77 to $35.85 and Santos, up 39c to $7.75.

Interest rate policy remained a major consideration with a critical point reached as the yield on Australian Government bonds matched the yield available on stocks in the ASX 200 for the first time in more than a decade.

U.S. investors are increasingly confident that the Federal Reserve has finished raising rates and will now let them sit at their current level for much of the next year, or until there is clear evidence that inflation is broken.

Lithium was the star attraction on the Australian market with the fate of takeover target Liontown uncertain as Albemarle Corporation wins an extra week to wrap up the due diligence investigation to support its $3 a share offer just as iron ore billionaire Gina Rinehart hit the critical 20% mark with its on-market Liontown buying.

The next week promises to be a stalemate at Liontown with Rinehart unable to go beyond 20% without launching a takeover bid and Albemarle considering its options.

The choices for Albemarle could include walking away, leaving Rinehart to finish the job, or for a joint venture to be worked out – which seems the most likely development, perhaps with Chris Ellison from Mineral Resources playing a role.

Other lithium news this week included:

  • Citi, an investment bank, warning that the lithium market has entered a period of oversupply as last year’s deficit of 81,000 tonnes of lithium carbonate gives way to a 9,000t surplus this year, to be followed by four more years of surplus before a small deficit in 2028 – followed by years of whopping deficits.
  • Pilbara Minerals reclaimed recently lost ground with an 18c share price rise to $4.08 despite a warning from UBS that the miner’s September quarter report could disappoint on lower-than-expected realised prices.

  • Mineral Resources enjoyed a boost from a tour by bankers of its lithium and iron ore projects adding $1.01 to trade at $62.16, well short of the $83 target price of Morgans.

  • Latin Resources was another lithium stock showing off its assets to bankers who travelled to its Salinas project in Brazil with CG Capital Markets leading the charge with a price target of 70c, miles ahead of last sales at 28c this week, a gain of 2c.

  • Azure Minerals confirmed its popularity with bankers and brokers, led by Bell Potter which liked the latest test work on samples from its Andover project in WA, tipping a future price for the stock of $4.90 even as the stock lost 15c this week to $2.44, and

  • Green Technology Metals added 3.5c to 45c after releasing the latest drilling results from its Root Bay project in Canada with a best hit of 18.4 metres at 1.53% lithium from a depth of 580.1m.

Old economy commodities also had some time in the sun this week thanks to Rio Tinto hauling a travelling troupe of analysts up to its Pilbara iron ore operations with a media show-and-tell to follow next week.

The site visit did some good by demonstrating that the company (and the wider iron ore industry) is improving its environmental and social performance after the shock of the Juukan Gorge incident which saw Rio Tinto blasting damage an ancient Aboriginal rock shelter.

But, on balance the benefit was mixed with Rio Tinto’s share price barely moving while critics were able to pick holes in its outlook with Citi telling clients that the company’s Pilbara operations “show improvement but not at the pace we expected”.

It was a better result for small iron ore player CZR Resources which delivered an excellent definitive feasibility study into its Robe Mesa project with a low cash cost and high project margins. On the market, CZR initially rose by 70% to 22c before easing to 18c, up 5c (38%).

Gold stocks performed well this week as the price of the metal recovered from a fall to US$1811/oz last week, led by the leading producers. Northern Star added 83c to $11.40 while Evolution was up 30c to $3.57.

Other gold moves of interest included:

  • Bellevue Gold, up 6.2c to $1.43 after announcing the start of developing the first stope (mine face) at its namesake mine in WA where the processing plant is nearing completion.

  • Calidus added 2.3c to 15c after reporting strong September quarter production and the potential for high grade feed for the Warrawoona plant from the Mickey’s Find deposit.

  • Zuleika Gold rose by 0.3c to 1.8c after high profile prospector Mark Creasy boosted his stake in the stock, and

  • Antipa Minerals added 0.2c to 1.4c after reporting the start of a major drilling campaign at its Minyari Dome project in WA’s Pilbara with Shaw and Partners tipping a rise to 6c.

Develop led a stronger copper section after reporting a 40% increase in the resource at its Woodlawn copper and zinc project in NSW with the 10.3 million tonnes at 1.8% copper and 6.1% zinc effectively underwriting at least 10-years of mining. On the market, Develop added 4c to $3.18.

Other copper news and moves included:

  • Aeris clawing back 5c to 22c, reversing some of the ground lost since the start of the year when it was trading at 80c. Solid production numbers aided Aeris with Bell Potter tipping a continued rise to 30c.

  • American West Metals slipping 1c lower to 13c after reporting that it might have a “camp-scale” opportunity at its Storm project in Canada, and

  • 29Metals adding 3c to 65c as it recovers from a heavy sell-off earlier in the year. Macquarie Bank reckons the stock will get back to 80c, where it was in June.

The strong run by uranium stocks paused this week after a US$3 per pound slip in the price of the nuclear fuel to US$69/lb, though most falls were modest. Deep Yellow lost 1c to $1.29, as did Bannerman which traded down to $2.68.

Elsewhere, moves and news included:

  • Australian Strategic Materials adding 14c to $1.51 after announcing excellent heavy rare earth recoveries from its Dubbo project in NSW.

  • Nickel Industries rose by 2.2c to 78c after saying it had reached a final investment decision on its Excelsior nickel and cobalt development in Indonesia. Bell Potter sees the stock rising to $1.73.

  • Pantoro reported encouraging gold production numbers for the September quarter from its Norseman mine in WA, lifting the stock by 0.2c to 3.9c, and

  • Genex Power rose by 1.2c to 16c after announcing a power supply deal with Fortescue Metals. CG Capital reckons Genex could rise to 27c.










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